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TMI Blog2005 (3) TMI 766X X X X Extracts X X X X X X X X Extracts X X X X ..... force, to declare on the package thereof the retail sale price of such goods. (3) The State Government may, for the purpose of fixing the rate of abatement under sub-section (1), take into account the amount of sales tax and other local taxes, if any, payable on such goods. Explanation.-(i) Where on the package of any goods different retail sale prices are declared with reference to different areas, the retail sale price declared with the reference to the area within the State in which it is sold shall be deemed to be the retail sale price for the purposes of this section. (ii) Where on the package of any goods different retail sale prices are declared with reference to different areas and none of the areas falls within the State, the maximum of such retail sale prices shall be deemed to be the retail price for the purposes of this section. The present writ petition has been filed to challenge the constitutional validity of the aforesaid provision. It envisages levy of sales tax on any transaction of sale of notified goods not on the actual price of consideration which is paid or becomes payable by the buyer to seller on such sales which have taken place, but on the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be charged. Under the Act of 1976 and under the provisions of the Drugs (Price Control) Order, 1995 issued by the Central Government under section 3 of the Essential Commodities Act, 1955, the maximum retail price is determined in the case of Scheduled Formulations only. But maximum retail price is required to be displayed on the label of container as well as package in respect of all the drugs whether scheduled or non-scheduled formulations. It has been urged that by and large the first point sale in State of Rajasthan takes place between C and F agents/consignee agents/depots on the one hand as sellers, registered dealers and the wholesalers and in case of inter-State transactions such first point sale takes place between distributors and wholesalers at the negotiated and contracted price agreed to between them (respective buyers and sellers) which obviously cannot exceed the printed retail price minus retailer's margin and wholesaler's margin. With the aforesaid premise, it has further been contended that the mention of price on the package under the aforesaid provision is the maximum retail price and not the price necessarily or actually charged at the end sale for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions have also been challenged on the ground of vagueness. Defending the validity of the provision, it has been contended by the learned Advocate-General and learned Additional Advocate-General that what is to be measure of tax on a sale is within the domain of the State Legislature. Under the impugned provision tax is levied on a completed sale within the meaning of section 4 of the Sale of Goods Act, 1930. However, in what manner the charge is to be levied is a matter of details which can be worked out by legislation. The fact that the maximum retail price is to be determined statutorily and the State Legislature has taken into account the fact that the actual consideration at the first point tax may be less than the maximum retail price that may be charged ultimately from the consumer at the last point sale as provided for abatement of maximum retail price by reducing therefrom the sum at prescribed rates of abatement, for the purpose of levy of tax, it provides sound basis for uniform liability in the State on such transactions. The levy of tax with reference to maximum retail price cannot be said to be wanting in nexus with the taxing event. Therefore, the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales of goods in entry 48 of List II of the Seventh Schedule of the 1935 Act providing for legislative field of sale of goods ought to be confined to levy of tax on sales of goods as defined in the Sale of Goods Act, 1930 and in substance, it is a levy on price of goods and the State Legislature does not have power to enlarge the definition of sales by creating a legal fiction and tax sales which have not come into existence. The next case which falls for consideration and relied on by the learned counsel for the petitioners is State of Madras v. Gannon Dunkerley Co. (Madras) Ltd. [1958] 9 STC 353 (SC); AIR 1958 SC 560. The Constitution Bench of the Supreme Court considered in this case the construction of entry 48 in List II of the Seventh Schedule to the Act of 1935 tax on the sale of goods which is in pari materia with entry 54 in List II of the Seventh Schedule to the Constitution of India. The question had arisen in a case arising under the Madras General Sales Tax Act, 1939 as amended by the Madras General Sales Tax (Amendment) Act, 1947. The definition of sale in section 2(h) was enlarged so as to include a transfer of property in goods involved in execution of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended meaning and to enlarge its legislative field to cover those transactions for taxing which do not properly conform to elements of sale of goods within Act of 1930. Tax on value of the material used in construction of building was held to be ultra vires. The decision in Firm of M/s. Peare Lal Hari Singh v. State of Punjab [1958] 9 STC 412 (SC) also relates to imposition of tax on supply of materials used in building contracts and the court has followed its decision rendered in Gannon Dunkerley Co. [1958] 9 STC 353 (SC); AIR 1958 SC 560 and held that the expression sale of goods in entry 48 in List II of the Seventh Schedule of the Government of India Act, 1935, has the same import which it bears in the Sale of Goods Act, 1930. The principle was reiterated in Bhopal Sugar Industries Ltd., M.P. v. D.P. Dube, Sales Tax Officer, M.P. [1963] 14 STC 406 (SC), where the question arose whether giving extended definition of retail sale in section 2(1) of the Act, which sought to render consumption by the owner of motor spirit liable to tax under the Act by virtue of section 3, is beyond the competence of the State Legislature and hence void. The court relying on its earlier ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a sale is that the property is transferred from seller to the buyer for a price, whether paid at once or paid later in instalments. On the other hand, a hire-purchase agreement, as its very name implies, has two aspects. There is first an aspect of bailment of the goods subjected to the hire-purchase agreement, and there is next an element of sale which fructifies when the option to purchase, which is usually a term of hire-purchase agreements, is exercised by the intending purchaser. With this distinction in mind, the Explanation to the extent it permitted levy of tax even before the option had been exercised to purchase the goods and the property was divested from seller to vest in the purchaser, was held to be ultra vires as the State Legislature was not competent to extend the meaning of word sale used in entry 54 of the Seventh Schedule to the Constitution which corresponds to entry 48 of the Government of India Act, 1935 and make something a sale which has not come into existence as per term sale defined in the Indian Sale of Goods Act, 1930. For reaching this conclusion, the court relied on its earlier decision in Budh Prakash Jai Prakash's case [1954] 5 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere may be two ways of doing it. The sales tax authorities may split up the hire into two parts, namely, the amount paid as consideration for the use of the vehicle so long as it was the property of the owner, and the payment for the option on a future date to purchase the vehicle at a nominal price. If the first part is determined the rest would be towards the payment of price. This case accepted two principles. Firstly, that hire-purchase agreement contains two sales and tax in case of later sale does not become payable until option to purchase is exercised by the hirer and a completed transaction comes into existence and secondly, price content of second sale must be determined by excluding therefrom hire content paid or payable by the hirer for use of thing before exercise of option when title passes to him under a competed sale. The tax can be levied with reference to that amount which can properly be said to be consideration for transferring title of property in goods to buyer. Anything extra therefrom was excluded. In appropriate cases, it may be for the taxing authority to determine the price at which a particular sale may be taxed, where it is not possible to determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing in hotels . It was pointed out that supply of meals was essentially in the nature of service provided to them and could not be identified as a transaction of sale. The contention of the Revenue that such transaction can be split into two parts; one of the service and other of sale on food stuffs was rejected. Considering the provisions of the Punjab General Sales Tax Act, 1948 a Constitution Bench of the Supreme Court held that the transaction between a hotelier and a visitor to his hotel whereby the former receives the latter for lodging in his hotel is essentially a contract of service and where in the performance of the service and as part of the amenities incidental to that service, the hotelier serves meals at stated hours, the transaction is not sale. Thus, reiterating that the essential elements of sale of goods, i.e., to transfer any goods for value received or receivable is absent in service of foodstuffs of hotel to its residents, the State legislation's power to tax was confined to the sales of goods in stricto sensu under the provisions of the Sale of Goods Act, 1930. The principle was extended and reiterated in respect of supply of foodstuffs in restau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l consent is not totally excluded in any dealing in law it is a contract. The court approved the principle enunciated in Indian Steel Wire Products Ltd. v. State of Madras [1968] 21 STC 138 (SC); AIR 1968 SC 478 and in Andhra Sugars Ltd. v. State of Andhra Pradesh [1968] 21 STC 212 (SC); AIR 1968 SC 599. In the former case, the court observed that though the controller fixed the base price of the steel products and determined the buyers, the parties were still free to decide the other terms of the bargain, as for example, the time and date of delivery and the time and mode of payment and therefore, it could not be said that there was no agreement between the parties to sell and buy the goods. It was held that though the area within which it was possible for the parties to bargain was greatly reduced on account of the Iron and Steel Control Order, it was not correct to contend that because law imposes restrictions on freedom of contract, there could be no contract at all. So long as mutual assent is not completely excluded in any dealing, in law it is a contract. In the latter case, the court observed that the cane grower in the factory zone was free to make or not to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the form of a contract of property in any goods for cash, deferred payment or other valuable consideration; (ii) a tax on the transfer of property in goods (whether as goods or in some other form) involved in execution of works contract; (iii) a tax on delivery of goods by hire-purchase or any system of payment by instalment; (iv) a tax on the transaction of right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable considerations; (v) a tax on the supply of goods by any unincorporated association or body of persons to a member thereof for cash or deferred payment or other valuable consideration, and lastly (vi) a tax on the supply by way of or as part of any service or in any other manner whatsoever of goods being food or any other article for human consumption or any drink (whether or not intoxicating) where such supply is for cash or deferred payment or other valuable considerations. This clause was inserted in the Constitution by Forty-sixth Constitution Amendment Act, 1982 retrospectively. Certain transactions which were held to be not falling within definition of sale of goods and were held to be outside the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial'. In Hindustan Sugar Mills Ltd. v. State of Rajasthan [1979] 43 STC 13 (SC), the question arose about the price content of a sale of cement which was subject to Cement Control Order, 1967. The Control Order had devised that no dealer could sell cement at a price exceeding ₹ 214.65 per metric tonne free on rail, destination railway station plus the excise duty paid thereon. The assessee despatched cement to the purchasers, prepared invoices showing free on rail destination railway station price of the cement despatched, added to it the amount representing excise duty and packing charges and then deducted from that amount, the railway freight to be paid by the purchasers. The assessee did not charge in the invoices sales tax on the amount of railway freight, but in order to provide against a possible claim which might be made by the sales tax authorities, the assessee claimed by way of deposit an amount towards contingent liability of sales tax on railway freight to be paid by the purchasers. The question arose whether the amount receivable from the buyers for the purchases towards free on rail destination railway station price in the invoices forms the part o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... art of the running capital, it does not constitute turnover. This contention was not accepted by the Supreme Court finding that the incidence of excise duty is directly relatable to manufacture. Payment of excise duty is the primary and exclusive obligation of the manufacturer and is a condition precedent to the removal of the liquor from the distillery. So when payment is made under a contract or arrangement by any other person, or when under a prior agreement, the legal liability of the manufacturer-dealer for payment of excise duty is satisfied by the purchaser by direct payment to the Excise Authorities or to the State exchequer, it would amount to meeting of the obligation of the manufacturer and nothing more. According to the normal commercial practice, excise duty should have been reflected in the bill either as merged in price or being shown separately. In the hands of the buyer the cost of liquor is what is charged by the appellant-manufacturer under its bill together with excise duty which the buyer has directly paid on seller's account. Excise duty though paid by the purchaser to meet the liability of the appellant, is thus a part of the consideration for the sale an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... price is taken to be measure of tax to which rate of tax is to be applied. From the aforesaid discussion, the principle which can be well-settled is; firstly that the term sale of goods in entry 54, List II has the same meaning as sale defined under the Sale of Goods Act, 1930 and that the State Legislature cannot enlarge the meaning of sale so as to tax a transaction which is not sale within the meaning of Act of 1930. Clause (29A) in article 366 gave extended meaning to tax on sale or purchase of goods to include certain transactions within its ambit which had otherwise been held to be not falling within precincts of sale of goods as discussed above.However, beyond such extended meaning, the principle still remains the same that the term sale of goods in entry 54, List II has the same meaning as under the Sale of Goods Act, 1930 and it envisages within it four essential elements namely (i) parties competent to contract, (ii) mutual assent, (iii) a thing, absolute or general property in which is transferred from seller to buyer, (iv) price in money paid or promised. Thus price paid or promised to be paid, whether under agreement express or implied when price is regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to K.L. Johar's case [1965] 16 STC 213 (SC), in which in respect of the second sale under a hire-purchase agreement, the court confined the levy of tax to that part of amount which could properly be related as consideration for transfer of property in goods by excluding that part of amount which properly be said to be charged by the financier from the buyer as hire for use of such goods before property in them actually passes to the buyer. This case is an authority about what can be or cannot be considered as part of price component of sale. But it does not lay down that rate of tax can be applied to any such amount as measure which is not the component of taxable sale as price. The next decision relied on by the learned Additional Advocate-General is Indian Steel Wire Products Ltd. v. State of Madras [1968] 21 STC 138 (SC); AIR 1968 SC 478. As discussed above while considering the decision in Vishnu Agencies (Pvt) Ltd. v. Commercial Tax Officer [1978] 42 STC 31 (SC); AIR 1978 SC 449, in which this judgment has been approved, the fact that the price has been fixed under a Control Order and dealer was under an obligation to sell the goods at controlled price, does not t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n statute ordained what shall be value of goods for the purpose of levy of duty, the amount actually charged by the assessee cannot be relevant. The court agreed with the contention of the assessee that by virtue of the proviso to section 4A, a legal fiction has been created that the price fixed under the Control Order has to be taken as normal value of goods. It is urged that by parity of reason, in the instant case, the price fixed by the notification dated 18th October, 1997 can be taken as the normal price of the sale by wholeseller to retailers in the case of drugs and medicines. Obviously, the element of determination of price element of a sale transaction is absent in the case of levy of excise duty on goods manufactured by any manufacturer. The levy of excise duty may be on the value of goods or may be fixed according to quantity of goods. In cases where the levy is ad valorem, it is within the domain of the legislative authority to provide for the guidelines how the value of the goods which is conceptual value subject to duty is to be determined. Since for the purpose of determining the value of goods manufactured, for providing base for levy of excise duty was statu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... j Madhav Rao Jivaji Rao Scindia Bahadur v. Union of India AIR 1971 SC 530, which concerns the abolition of privy purses, does not offer any assistance in deciding the controversy raised before us. In the like way, the learned counsel for the Revenue has referred to an unreported judgment by this court rendered by a learned single Judge in Purohit Swaroop Narain v. State of Rajasthan [S. B. C. Writ Petition No, 40 of 1968, decided on September 24, 1970]. It was a case arising under the Rajasthan Land Reforms and Resumption of Jagir Act, 1952 seeking a mandamus for implementing and executing an order passed by the Khudkast Commissioner in favour of the petitioner. We see no relevance of the said judgment throwing any light to the controversy raised in this case. Machinery provision to have nexus with taxing event It is a settled principle that the Legislature has more room for flexibility in providing machinery for computation and recovery of tax validly imposed. Equally well-settled is that such machinery provision must have a nexus with subject of tax. In State of Bombay v. R. M. D. Chamarbaugwala AIR 1957 SC 699, the question was considered by the Supreme Court while e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with subject of tax, viz., goods manufactured in India and therefore the duty collected from the consignee does not lose its character as excise duty payable on manufacture of goods. It may be noticed that it was also a case in which the taxing event was one which did not change with the consignment of goods and the levy was directly connected with the taxing event namely, the manufacture of the goods by the manufacturer or producer though it was ultimately collected from the consignee to whom ultimately the goods were delivered at the destination. The measure of tax to which rate of tax was to be applied remained the value of the goods manufactured and was not divorced from the taxing subject namely, the goods manufactured. Again the matter came before the Supreme Court in Khyerbai Tea Co. Ltd. v. State of Assam AIR 1964 SC 925. It concerned the levy of tax relating to entry 56 of List II namely tax on goods and passenger carried by road or inland waterways. In exercise of its powers, the State of Assam has enacted the Assam Taxation (On Goods Carried by Road or on Inland Waterways) Act 1961. The liability to pay tax on carriage of tea was placed on producer of the tea. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bring out two principles very clearly. Firstly that power to tax on a particular subject must emanate from the provisions of the Constitution. Secondly, the machinery provision for levy and collection of tax must be integrally connected and having nexus with the subject of tax. Once the machinery provisions for levy and collection loses nexus with the subject of tax, it may not be permissible for the Legislature to enact such a provision. Nexus between taxing event and measure of tax : Having examined the meaning of expression sale or purchase of goods in entry 54 of List II of the Seventh Schedule and the concept of price component of sale, the next question arises about the nature of imposition of tax on sale of goods. In examining this issue, first principle that is to be kept in view is distinction between authorisation of charge and machinery provision which made the implementation of charge effective. In the oft-quoted words of the Lord Dunedin in Whitney v. Inland Revenue Commissioner [1926] AC 37 : Now there are three stages for imposition of a tax. There is a declaration of liability, that is part of statute which determines what persons in respect of what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt in re The Central Provinces and Berar Sales of Motor Spirit and Lubricants Taxation Act, 1938, [1938] 1 STC 1 ; AIR 1939 FC 1, found it to be quite complex to arrive at the true nature of tax on sale of goods not only in distinguishing it from a duty of excise but also from the turnover tax or sales tax . In delineating the distinction, Sulaiman J. in his opinion said that tax on sale of goods necessarily must be a tax imposed at the time of sale of goods. In Province of Madras v. Boddu Paidanna and Sons [1942] 1 STC 104 (FC) ; AIR 1942 FC 33, while considering the difference between sales tax and the excise duty, considering the nature of question of excise duty, the court said : .....There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed, destroyed or given away. A taxing authority will not ordinarily impose such a duty, because it is much more convenient administratively to collect the duty (as is in the case of most of the Indian Excise Acts) when the commodity leaves the factory for the first time, and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndnut the turnover relating to that purchase, the question of exemption apart, becomes liable to tax. A five-Judge Bench of the Supreme Court in Gangs Sugar Corporation Ltd. v. State of Uttar Pradesh [1980] 45 STC 36 ; [1980] 1 SCC 223, has considered the aspect in some detail. The question has arisen in a group of appeals arising from a common demand for tax by the State of Uttar Pradesh as to the basis of levy once a transaction is held to be a transaction of sale. The court said, Tax on sale or purchase must be on the occurrence of a taxing event of sale transaction. The apex Court in Govind Saran Gangs Saran v. Commissioner of Sales Tax [1985] 60 STC 1 ; AIR 1985 SC 1041 on analysing article 265, has said that : The components which enter into the concept of a tax are well-known. The first is the character of the imposition known by its nature which prescribes the taxable event attracting the levy, the second is a clear indication of the person on whom the levy is imposed and who is obliged to pay the tax, the third is the rate at which the tax is imposed, and the fourth is the measure or value to which the rate will be applied for computing the tax liability. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f tax, but did not countenance it to be divorced from the nature of tax. The court said : Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy. With these premise the court found that while nature of an excise is indicated by the fact that it is imposed in respect of manufacture or production of an article, the point at which it is collected is not determined by the point of time when manufacture is completed but will rest on consideration of administrative convenience and that generally it is collected when the article leaves the factory for the first time. Identifying the first sale by manufacturer as stage and point when the levy is to be collected was found to have a nexus with levy of excise duty. Price and sale are related terms and have a definite connotation. The value of excisable article is a conceptual term, which concept can be visualised by the Legislature with reference to price charged by the manufacturer at first sale in terms of section 4. Thus, measure of excise duty was not restricted to manufacturing cost plus manufacturing profit. Wholesale cash price at whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a and the said sub-section clearly indicates the nature and character of the duty, namely, that it is a tax on production and manufacture of goods, while section 4 is in the nature of machinery provision and, therefore, anything said therein must be read so as to carry out the basic concept of excise duty. It was a case in which Revenue sought to include in assessable value of excisable goods, administrative charges collected on sale of molasses under the U. P. Sheera Niyantaran Adhiniyam, 1964. Rejecting the contention of Revenue, the court said that administrative charges in question were distinct, separate and in addition to price of molasses which price is statutory price fixed under the U.P. Act and is not relatable to taxing event identified in charging section. In this case also, we are concerned with somewhat like situation relating to charge of levy on sale under Price Control Order. It is discernible that in cases where the taxing event is one, e.g. in the case of excise duty the collection of tax remains a tax on manufacture of goods and can be collected from a person who has a nexus with the goods which are subject of tax. However, in the matter of levy of exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods. The other component of sale is the price of goods sold. Either of can provide measure of tax. But measure vis-a-vis goods must be of goods which are subject to taxable transaction and so also if price of goods is to be measure to which rate is applied, it must be constituent of such sale which becomes taxable, or relatable to compliment of such sale. Unlike excise duty, where levy is on goods manufactured, in the case of tax on sale of goods, the price cannot be considered as a conceptual idea, which can be defined independently. Price and sale are not conceptual ideas but carry definite legal connotation. Price as defined in Sale of Goods Act is essential part of a completed sale of goods which become subject of tax. As the principle is well-settled that tax cannot be levied on any transaction which is not sale in accordance with Sale of Goods Act by creating a legal fiction, it is also not permissible to divorce price as a measure of tax on sale by creating a legal fiction. The question of point of collection of tax and measure of tax is not the samething. If the tax is to be collected from the seller, it will be tax on the subject sale and the seller who has nexus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he tax. But, price of goods was approved to be usual meaning of levy of tax on sale of goods. It does not deviate from basic principle that a tax of any nature is determined ex hypothesi on occurrence of taxing event. Its actual computation and collection takes place later on through the machinery provided. However, the determination of charge ex hypothesi instantly on occurrence of taxing event which inheres into it that measure of tax is integrally connected with occurrence of taxing event and is not postponed to a later date. Thus, primarily the rate of tax relates to measure of tax to come into existence simultaneous with occurrence of taxing event. The machinery provisions relating to its quantification and collection can take place later. Providing measure to which rate is to be applied is integrally connected with charge itself. Somewhat in like circumstances, the court had occasion to consider the ambit and scope of legislative power of the State Legislature while imposing tax on sale of goods in Hotel Balaji v. State of Andhra Pradesh [1993] 88 STC 98 (SC) ; AIR 1993 SC 1048, wherein the court said : So long as the levy retains the basic character of a tax on sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufactured by him in the course of inter-State trade and commerce, on the purchase price of the raw materials, was the subject of challenge. The contention has been raised before the Supreme Court that since tax was leviable in cases where the goods manufactured were not sold in the State, it amounted to levy of excise duty on manufacture though named as purchase tax. In holding that levy was essentially a tax on purchase of goods within the State, one of the factors which weighed with the Supreme Court was that the levy was upon the purchase price of the raw material and not upon the value of the manufactured products. That is to say when the tax was levied at the transaction of purchase, notwithstanding it was leviable in case of goods manufactured by the dealer and were sold in a manner not taxable within the State is nonetheless tax leviable at purchase price and not on the value of the manufactured products. So it was held that the essential character of tax on purchase was retained and consequently it did not lose its character as a tax on purchase of goods. The court obviously indicated that in the case tax on sale, price on which transaction took place and not the value of g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... measure to which rate of tax can be applied. It may be noticed that in any of the cases to which reference has been made, the question really did not fall for consideration whether there can be any other basis than the actual sale price or price fixed for such sale by any statute or actual weight of the goods sold for measuring the tax on the transaction of sale of goods in respect of any particular commodity or commodities. Nor it fell for consideration that if the total turnover is considered to be measure to which rate of tax is to be applied for determining the tax ex hyphothesi when the taxing event takes place the turnover could be something other than aggregate of such sums which property can be included in price as discussed above. In other words whether an artificial standard of measure to fix the taxable turnover to which rate can be applied, can be adopted ? The principal contention about the invalidating of the basis or the measure of tax envisaged under section 4A of the Rajasthan Sales Tax Act, 1994 as inserted, vide, Finance Act, 2004 is that while it levies taxes on the sale transaction carried on by the manufacturer or wholesalers or distributor the measure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... takes place in fact. In the context of meaning assigned to expression sale of goods or price or consideration element of such sale of goods as taxable event, the conclusion that can fairly be reached is that for the taxing event of sale, if the price is to be the basis for measuring tax, it must relate to actual transaction of sale that becomes subject of tax and not to a different transaction that may take place in future at a price. It amounts to determine fictionally the price element of completed sale which becomes chargeable to tax with reference to price that may be chargeable (different from paid or promised to be paid) and controlled by the statute for such subsequent transaction, which has not come into being at all much less a completed transaction, more so in the case when charge is on single point in a series of sales. Transaction is the foundation that determines the liability to tax the completed sale at the point it becomes taxable and not the subsequent sale or sales in series of sales. Price as a constituent of sale is not a conceptual value but has a well defined legal connotation. Accepting the contention of Revenue that the retail sale price likely to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is required under section 39 of the Standard of Weight and Measures Act, 1976 to declare on packaging the unit of weight, the weight of packed commodity and sale price thereof. Similar provision may be operative for other commodities in terms of orders issued under Essential Commodities Act, as is in the case of Drugs (Price Control) Order, 1995 with which we are concerned. Whether prices are to be fixed under statutes or by the manufacturer, in the absence of any price fixation by controlling authority, the usual form of declaration is about MRP chargeable or price not to exceed- It may be further qualified with expression inclusive of all taxes or local taxes extra . However, retail price declared on cover does not convey the price chargeable in respect of inter-dealer sales, before stage is reached of sale to end consumer though it is obvious that such inter-dealer price is bound to be less than the MRP so declared keeping in view profit margin of intermediaries and other relevant factors. To illustrate the para 7 of the Drugs (Price Control) Order, 1995 provides the method of fixing retail price. It provides for considering trade margins and margin of manufacture not exce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of the Rajasthan Sales Tax Act, 1994 : The charging section 4 ordains that the tax payable by a dealer under the Act of 1994, shall be at single point in the series of sales by successive dealers, as may be prescribed and shall be levied at such rates not exceeding fifty per cent on the taxable turnover, as may be notified by the State Government in the Official Gazette. Thus, making clear that there is no multi-point tax within the State and the tax is levied on the first point sale within the State in a series of sales and tax is leviable at rate applied to aggregate of price received or receivable by the dealer on such sales. Section 4A does not become workable unless read along with definition of turnover and taxable turnover. The turnover and taxable turnover have been defined in section 2(44) and 2(42) respectively. Sub-section (44) of section 2 states that turnover means the aggregate amount received or receivable by a dealer for sales as referred to in clause (38) including the purchase price of the goods which are subject to purchase tax under section 11 of the Act. Taxability under section 4A too is on total turnover in case of goods notified under it. Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the taxing events took place, namely, when the sales in question took place, the assessee was not liable to pay any tax in respect of those sales, as the sales effected by him were second sales. The admitted position is that the sales made by the wholesalers to the retailers are the first point sales, within the State inviting the charge of tax under section 4 and the taxable turnover of the subsequent dealers, viz., the retailers or sub-retailers shall not include the turnover of sale of goods which had already suffered tax at the hands of wholesaler at the first point sale. Without the aid of section 4A, the tax would have been levied at the aggregate of sale price of the dealer through the whole of the taxable period as is received by him or receivable by him from the buyer of his goods under the contract of sale. In the facts and circumstances of the case, what cannot be lost sight of is that price that may become consideration as part of sale of scheduled formulation from wholesaler to retailer is also controlled by Price Control Order. The Scheme of Drugs (Price Control) Order, 1995 : The Drugs (Price Control) Order, 1995 (DPCO) issued under the Essential Commoditie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods will not be sold to retailers by ordaining that no manufacturer, distributor or wholesaler shall fix the price exceeding 16 per cent less than the maximum retail price. For example if the maximum retail price for a drug to be sold by a retailer to a customer is fixed at As. 100, the wholesaler, manufacturer, distributor or wholesaler shall not sell a formulation to a retailer at a price exceeding As. 100-16=As. 84. Thus, the maximum price at which a wholesaler, distributor or manufacturer can sell the formulation to a retailer for further sale is also necessarily fixed by the Drugs (Price Control) Order, 1995. We have noticed above that even in cases where maximum rates are fixed or the retail price is fixed under the Price Control Order by statute, the transaction does not lose its character of a transaction of sale so long as there is some element of mutuality of voluntary consent is left. That is to say, where a sale price is not to exceed a particular rate there is always room for contracting party to agree for a price less than that ; apart from the freedom of option to enter into a contract at all always rest with the parties. Therefore, it is a misnomer to say that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence to another taxing event which has not even taken place and may not ultimately take place at all in relation to the goods in question and which under the statute authorising levy is not subject to tax. Every transaction of sale is independent and can be subjected to levy of tax and the components and the measure which can make the tax levy effective must have nexus with the taxable event. The point of collection and levy of tax may be shifted but the essential feature of the levy of tax on one taxable event cannot be altered to another taxable event which the law does not permit. Where the statute envisages multi level taxes, each event of sale becomes independently taxable event. In case it is single point tax, it is for the Legislature to choose the point at which happening of taxing event would become subject of tax and it is that contract of sale in series of sales that attracts authorisation of levy. In respect of such identified taxing event whether the tax is collected in advance or is postponed to a later stage, the liability remains in relation to that taxing event and not to any other event. Else it would result in changing the nature of basic character of subjec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in section 4 and that too in the Explanation contained therein by way of definition of 'transaction value' can neither override the charging provision nor by reason thereof a 'goods' which is not excisable would become an excisable one only because one is fitted into the other, unless the context otherwise requires. This illustrates the point that non-taxable subject cannot be transplanted into taxable subject to make the increased value chargeable to tax by taking it a measure. The ingredient which is not subject of charge has to be excluded from the measure of levy for computation of tax. Parity of reason makes us conclude that by devising a methodology in the matter of levy of tax on sale of goods law prohibits taxing of a transaction which is not a completed sale and also confine sale of goods to mean sale as defined under the Sale of Goods Act, 1930. This cannot be overridden by devising a measure of tax which, relates to an event which has not come into existence when tax is ex hypothesi determined, much less which can be said a completed sale and which cannot be subject of legislation providing tax on sale of goods by transplanting a sum related to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat point or later, the component of that taxing event can alone furnish the nexus for applying the rate of tax whether it may be related to the quantities of goods sold or it may be the price for which the goods have been sold and purchased. But if one wants to travel beyond the subject-matter of taxing event, it would be a different taxing event which would be subject to tax. Similarly Supreme Court in ACER India Ltd.'s case [2004] 137 STC 596 (SC) ; [2004] 3 RC 421 (SC) ; [2004] 8 SCC 173, clearly held that by transplant of non-excisable goods in excisable goods, the levy cannot be imposed including the value of non-excisable goods in excisable goods. We may summarise the principles deducible from above discussion : A (i) The principle which can be well-settled is ; firstly that the term sale of goods in entry 54, List II has the same meaning as sale defined under the Sale of Goods Act, 1930 and that the State Legislature cannot enlarge the meaning of sale so as to tax a transaction which is not sale within the meaning of Act of 1930. (ii) In a transaction of sale of goods which is liable to tax there must be concurrence of the four elements, viz ; (1) Parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rth is the measure or value to which the rate is applied for computing the tax liability. I. Decided cases establish a clear distinction between the subject-matter of a tax and the standard by which the amount of tax is measured. These two elements are described as the subject of a tax and the measure of a tax. J. Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy. K. In any provision in the nature of machinery provision must be read so as to carry out the basic concept of the levy. L. Where the sales tax or purchase tax is levied on a dealer, the levy is usually with reference to his turnover, which normally means the aggregate of the amounts of sale prices or purchase prices, as the case may be. M. To measure tax on sale or purchase of goods, price as basis is not only usual but also safe to avoid uneven, unequal burdens, although it is conceivable that a Legislature can regard prices which fluctuate frequently as too impractical to tailor the purchase tax. N. In rare cases, when it is iniquitous to link purchase tax with price, more sensible bases can be found. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llary expenses or charges until sale is complete by passing of title in goods to the buyer. But it cannot include anything which does not become part of consideration received or receivable by the seller for such sale. If any amount can be named by Legislature on which rate of tax on sale of goods is to be applied, irrespective of its connection with completed sale, it will lose its character as tax on sale of goods inasmuch as fixing any sum as measure de hors the transaction of sale to be taxed will reduce the basic concept of tax on completed sale of specified goods to redundancy. We have noticed above that it is only the completed transaction which can be subjected to tax and not agreement to sell, much less transactions which are yet to take place in future. Mere agreement to sell or in the case of hire-purchase agreement until option is exercised by the buyer to purchase goods, sale to buyer by financier was not held to be transactions of sale at all on which levy could be imposed. It was clearly held by the apex Court in K. L, Johar and Co's case [1965] 16 STC 213 (SC) that imposition of tax under hire-purchase agreement before option is exercised by the hirer and tit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on sale when sale takes place between wholesaler and the retailer, it amounts to tax a subject which has not come into existence. On the other hand, if it is taken to be a mere measure of tax, and not the convenient collection of tax at earlier point, the measure of tax is by engrafting an element of event which is not taxable. In such event, as per principle enunciated in ACER India Ltd. [2004] 137 STC 596 (SC) ; [2004] 3 RC 421 (SC) ; [2004] 8 SCC 173, it is not permissible. In this connection, the principle has clearly been stated in ACER India Ltd.'s case [2004] 137 STC 596 (SC) ; [2004] 3 RC 421 (SC) ; [2004] 8 SCC 173, that by including the value of non-excisable article with excisable article the measure of tax cannot be increased. In the wide discretion vested in Legislature to chose a suitable measure to which rate of tax may be applied, one inherent restriction is that in doing so it cannot implant a non-taxable value with taxable value. The contention that like the excise duty, the sales tax is ultimately passed on to the consumer and it can be recovered from any person at a convenient stage on a sale of goods, and therefore, if a transaction of sale by wholesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hargeable on future sale only in respect of sale of such goods where MRP is published on package or container. The object is stated to be that in case of tax on first point sale or at earlier point the end-buyer pays much more then the buyer at such earlier stage. With this object to choose only the MRP branded goods have no nexus, to depart from normal levy in respect of sale of other commodities by departing from normal rules of computing taxable turnover. The end-consumer in the case of single point tax in a series of sales, invariably pays more price than the price paid at an earlier sale in series of sales, when it becomes a taxing event. On the other hand, the MRP is published with the object of protecting consumer interest and keep a check on gross profit to be earned in respect of such commodities. A legislation which defeats this object also by subjecting consumer to pay more for such commodities, than in respect of commodities, which do not carry MRP by levying tax with respect to higher value, and ultimately for consumer the taxes paid by him become part of this purchase price. It is not related to subject sale which has come into existence and become taxable/ and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out section 206C it was stated that it is proposed to introduce a new section 206C to provide that any person, being a seller referred to in section 44AC shall collect income-tax of a sum equal to 20 per cent of the amount paid or payable by the buyer as increased by a surcharge for the purposes of the union.... The validity of two provisions were challenged before various High Courts. All the High Courts upheld the competence of Parliament to enact section 44AC and section 206C. Interpretation of section came up before A. P. High Court. The A. P. High Court upholding the validity of the Act read down the section 44AC of the Act and held it only to be an adjunct to section 206C and to explain provision of section 206C and not to dispense with the regular assessment in accordance with the provisions of the Income-tax Act. It was held that the subject-matter of tax, viz., income cannot be determined nationally by making such specific provision when in all other cases only the real income to be computed in accordance with provision of section 28 to section 43C. The apex Court noted that one of the contentions raised in the petition was that tax is levied on hypothetical income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for determining subject of tax only in certain commodities was held to be not within the constitutional limits but violative of article 14 of the Constitution. Before us, the specific case of the respondents is also that section 4A(1) is an adjunct to charging provision contained in section 4 of the Rajasthan Sales Tax Act, 1994. Hence, the measure envisaged under section 4A cannot be divorced from point of taxable sale and from the import of turnover and taxable turnover. Hence, the measure has to be read in substitute of MRP as price deemed to be recovered or recoverable to section 4A applicable to first point sale. Section 4A(1) refers to levy and collect tax on sale of goods at retail price thereof as abated by the rate specified in the notification. Read by itself, it applies to all goods whether such retail price is fixed under any statute or is required to be published on package under law. Sub-section (2) confines its applicability to goods where retail price is required to be published on package or container under any law. The objects and reasons for inserting provision like section 4A in the Sales Tax Act makes it further clear that the provision has been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comes a new taxing event, providing an independent subject which can be taxed and one sale cannot be engrafted in another for the purpose of levy. It is open for the legislation to choose to have recourse to multi-point levy or single point levy. In case it decides to levy a single point tax, the point at which the sale is to be taxed is also for the legislation to decide and it is the sale which occurs at the point so devised that becomes subject of tax and not the subsequent sale. If the tax is levied at the last point within the State, the price that is paid or becomes payable within the State in respect of that sale may provide a valid basis if no other basis is provided having nexus with the sale for levy of the tax on sales. Therefore, the view adopted by State of section 4A about providing measure of tax for sale of drugs or pharmaceutical production by manufacturer, wholesaler or distributor to retailer runs counter to the single point levy. If the tax on sale of goods under entry 54 is tax on sale as defined in the Sale of Goods Act, 1930, the price as defined on the goods remains an integral part of sale which becomes subject of tax and the levy cannot be divorced t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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